The cost of your Super? (New Zealand)

Whether you're buying a cup of coffee or choosing shares, it's difficult to escape issues such as climate change, fair trade and ethics. It's about shopping, and investing, responsibly. New Zealanders control how their personal savings are invested, but there is concern public funds have been invested in morally questionable enterprises overseas.

(10.05.2008)

The agency in the firing line is the New Zealand Superannuation Fund, created five years ago to help cover pension costs of "baby boomers" retiring.The fund is worth $13.5 billion and will hit $109b within two decades. The Government, as the fund's only contributor, tops it up by $2b each year.The fund aims to maximise returns without damaging New Zealand's reputation. In the past two years, that has meant quitting investments in firms that deal in illegal whaling, landmines and tobacco. The fund has a "responsible investment policy" to encourage "high standards of corporate behaviour". Even so, concerns remain about some assets.

"While you're shopping, bombs are dropping," chanted protesters outside the offices of the Super Fund in Auckland last month. "Your pension is invested in cluster bombs," their placards declared.It's a fact the Super Fund holds equity in firms that build cluster munitions, even though New Zealand has been a leading voice against the weapons."Effectively, we all have blood on our hands," says Green Party co-leader Russel Norman. "Whether we like it or not, we are making money out of the cluster-bomb industry which targets civilians, including children. We are making money out of death. When our taxes are taken from us, we don't have any control over how they are invested."After an international summit in Wellington last month the Super Fund said it would withdraw those investments - but only if New Zealand signs a treaty on cluster bombs, hopefully this month. For now, the investments stay put.

"The treaty demonstrates international commitment to the issue," says Anne-Maree O'Connor, head of responsible investment at the Super Fund."It will clarify definitional issues. There is quite a lot of debate among investors, companies and NGOs as to who is involved [with cluster munitions], and who is not, so it makes sense to wait and develop our divestment and exclusion policy in line with the treaty when it is signed."Norway Pension Fund, Europe's largest, has an ethics advisory committee, which can blacklist companies, a model that may work here.Proponents argue New Zealand needs an independent body to analyse the integrity of Super investments. An ethics or research arm could contribute to the fund's transparency.The Super Fund is run by a board of guardians and cannot be directed by the Government."The words 'responsible investment' don't change much," says the Council for Socially Responsible Investment CEO, Dr Robert Howell."The benchmark is so low the Super Fund can invest in things New Zealanders would not accept."Some funds have now been moved because of public pressure. But the problem is Crown investors are not required to report on the social, environ- ment and govern- ance status of investments."

Another con- cern is Super Fund investments in out- fits that maintain, produce and deliver nuclear technologies, including MBDA, the world's second-largest nuclear weapons maker.The Super Fund has started to review investments in firms that may produce such weapons, but there is no timeline or completion date.The fund has a philosophy of "engagement", where it is hoped that by engaging with questionable companies, investors can influ- ence their prac- tices. The idea began when American investors were dealing with South African companies that supported apartheid. Rather than pulling out their money investors asked the firms to change their approach.New Zealand is a small country, and the big players have many investors to choose from. Even so giants, such as General Electric, have changed position on issues such as climate change due to pressure from minor shareholders.The Super Fund is also part of the international Carbon Disclosure Project, which pressures firms to disclose their carbon footprint and effects.O'Connor said investors' strength was in numbers. "Excluding and divesting from companies is not the most effective tool for changing behaviour. We want to use our shareholder positions to encourage companies to adopt international standards, [and] investment managers to integrate those considerations into what they do."There are environmental and human rights concerns about Super Fund investments in Exxon Mobil and Freeport McMoRan. Such companies are accused of damaging indigenous communities, exploiting workers, and harming the environment.

"It should give us deep distress that part of the money we will live on in our old age has been gained from destruction, waste and conflict," says social justice campaigner Maire Leadbeater. "Many other governments have done the groundwork and investigated the big firms. If we take a stand, we won't be alone."The Super Fund contracts research specialists to analyse and monitor companies. The usefulness of this partly depends on firms disclosing accurate, honest information about their practices.But the Super Fund is not the only Crown institution with a large portfolio. There are four other major Crown investors, including the Earthquake Commission. Last year, Labour's Maryan Street proposed a bill to toughen social responsibilities of Crown investment arms and account for international agreements. Street dropped the bill when she became the Minister for the Accident Compensation Corporation.The ACC last month said it would remove investment from companies that design, test or assemble nuclear technology. Its investment policy declares it "will not invest in activities which it believes are repugnant to the laws of New Zealand or regarded as unethical by a vast majority of New Zealanders".

KiwiSaver holds private funds and allows individual investors to control their investments. The Securities Commission requires KiwiSaver providers to declare whether they promote responsible investment. If they mislead investors, they could be fined up to $300,000 or sentenced to five years' jail. By September, every prospectus will detail how the provider accounts for responsible investment.The Super Fund holds investments in thousands of companies across a diverse marketplace.O'Connor says it is inevitable that some of those companies will have "problems to deal with". But, she argues, responsible investment is now part of "best practice" portfolio management.